GDP GROWTH SLOWS TO 3.2%, BUT PERSONAL CONSUMPTION ACCELERATES

Thursday

According to the U.S. Bureau of Economic analysis, GDP rose 3.2% at an annualized rate in the fourth quarter, down from Q3's 4.1% pace of growth but right in line with consensus estimates.

Personal consumption growth accelerated to 3.3% annualized in Q4 from 2.0% in Q3, but failed to reach consensus expectations for a 3.7% gain.

The quarter-over-quarter change in the price index of core personal consumption expenditures was 1.1% at a seasonally adjusted annualized rate, down from 1.4% in Q3 but right in line with consensus estimates. The GDP price index, meanwhile, fell to 1.3% from 2.0% (landing slightly higher than the 1.2% consensus estimate.

The contribution of inventories to GDP growth in Q4 was 0.42 percentage points, about a quarter of what it was in Q3.

"The deceleration in real GDP in the fourth quarter reflected a deceleration in private inventory investment, a larger decrease in federal government spending, a downturn in residential fixed investment, and decelerations in state and local government spending and in nonresidential fixed investment that were partly offset by accelerations in exports and in PCE and a deceleration in imports," said the BEA in the release.

Real exports of goods and services increased 11.4 percent in the fourth quarter, compared with an increase of 3.9 percent in the third. Real imports of goods and services increased 0.9 percent, compared with an increase of 2.4 percent.

Real federal government consumption expenditures and gross investment decreased 12.6 percent in the fourth quarter, compared with a decrease of 1.5 percent in the third. National defense decreased 14.0 percent, compared with a decrease of 0.5 percent. Nondefense decreased 10.3 percent, compared with a decrease of 3.1 percent. Real state and local government consumption expenditures and gross investment increased 0.5 percent, compared with an increase of 1.7 percent.

The change in real private inventories added 0.42 percentage point to the fourth-quarter change in real GDP after adding 1.67 percentage points to the third-quarter change. Private businesses increased inventories $127.2 billion in the fourth quarter, following increases of $115.7 billion in the third quarter and $56.6 billion in the second.

Real final sales of domestic product -- GDP less change in private inventories -- increased 2.8 percent in the fourth quarter, compared with an increase of 2.5 percent in the third.

"No headline shock but some of the details are startling," says Ian Shepherdson, chief economist at Pantheon Macroeconomics.

"Residential construction plunged at a 9.8% annualized rate, after five straight double-digit gains. This suggests the BEA has assumed a hefty drop in December, presumably due to the severe weather. By contrast, inventories rose even faster than in Q3, contributing 0.4% to GDP growth. This is unsustainable, as is the 1.3% contribution from foreign trade; both will be much weaker in Q1."

Given the drop in government spending, however, Renaissance Macro head of U.S. economics Neil Dutta is relatively optimistic going forward, even though headline GDP growth failed to meet his expectations.

"The bulk of this miss stemmed from a sharp drop in federal government spending, which shaved top-line GDP growth by a full percentage point," says Dutta.

"The drop was spread in defense and nondefense spending, falling 14% and 10.3%, respectively. Stripping out this drag, private real GDP expanded 4.2% in Q4 after a 4.2% rise in Q3. That’s solid. With the pace of fiscal retrenchment easing in 2014, headline growth will improve."

See Also:

This Is The Best Explanation We've Seen For Why All Of Atlanta Is Stuck In TrafficWe've Now Had A String Of Weak DataDURABLE GOODS ORDERS UNEXPECTEDLY PLUNGEMORGAN STANLEY: 'This Is About As Good As It Gets'EXISTING HOME SALES MISS EXPECTATIONS

Never miss a story

Choose the plan that's right for you.
Digital access or digital and print delivery.